Emissions picture still to clear

18 December, 2009

SOURCE: Flight Airline Business

BY: Graham Dunn

Geneva

Ideas and proposals around taxing the airline sector as part of efforts to tackle climate change seem likely to continue to surface, as the crunch UN climate change talks in Copenhagen concentrated on trying to secure agreement on high-level issues.

The worst fears of the airline industry in how the world, or in some cases individual countries and regions, decide to address aviation's climate change contribution is that it will plump for taxation. The airline sector has consistently argued taxation is a blunt instrument, that neither does anything to address the climate change issue, nor has thus far tended to direct any of the funds generated into environmental projects.

But the idea of a tax on airlines keeps recurring. This had become evident again as all roads in tackling the environment led to Copenhagen.

"Yes there are bodies out there that love to point at aviation because it is an icon linked to lifestyle and so yes we are the target for some of those," acknowledged Paul Steele director for aviation environment at IATA as the talks in the Danish capital drew to a close. "But the discussions at Copenhagen, with country delegations and also some of the environment non-government organisations, shows there is a recognition that our position is moving us forward and we have made commitments.

"They may argue about the level of those commitments, but I think the good news is there's more of a convergence between our position. The NGOs are recognising ICAO is the right body to move forward on this, that a global sectoral approach is the only sensible approach for aviation and they are also recognising that tax is a blunt instrument."

The industry went into Copenhagen off the back of its united stance on how to tackle emissions. IATA has set targets, including improving CO2 efficiency annually by 1.5% to 2020 and a 50% reduction in carbon emissions by 2050, compared with 2005 levels. It has also teamed with other industry associations to press for a common position through ICAO. This, in October, resulted in ICAO committing to address the issue and to target a 2% cut in average fuel efficiency until 2020. After this it is seeking an "aspirational" annual fuel efficiency improvement of 2% thereafter to 2050.

"Here in Copenhagen, we have been talking about the need for a global approach," says Steele. "I think people understand aviation needs to be treated as a sector and understand tax is a blunt instrument. I think we've got a lot of support for that position."

During Copenhagen, moves resurfaced from some quarters to promote a tax on the airline and marine industries - both of which were not included in the previous landmark Kyoto Protocol - as a means of helping to generate the funds that could be committed for use by developing nations to tackle climate change.

Steele believes IATA has been able to get its message across to developing nations. "They are interested in the impact on their own economies, on tourism and trade, and they fully understand having a tax on aviation is not a way to go. I think there is a strong awareness among those countries that, by working through ICAO over the next 12 months, we can reach a framework that would be ideal for the industry and for the developing countries."

Ultimately Copenhagen was about trying to reach a global political agreement on tackling climate change, rather than nuts and bolts issues, and as it drew to a close it increasingly was forced to concentrate on securing top-level agreements.

IATA's push for a global sectoral approach comes as Europe continues to press ahead with its unilateral inclusion of aviation into its emissions trading scheme. The scheme, which covers all flights within, in and out of the EU, will apply from 2012 and airlines will from the start of January have to start supplying data in relation to this scheme.

The EU initiative has already drawn talk of legal challenges from non-EU states and IATA director general Giovanni Bisignani, a critic of such regional schemes rather than global solutions, believes it will be challenged over not complying with the Chicago Convention. "I'm convinced it will not happen. Many, many governments will challenge Europe. You will see in the following years a lot of this pressure," he says.

Meanwhile, a new study from the Carbon Trust, an independent company set up by the UK Government to help accelerate moves to a low-carbon economy, estimates operators of more efficient aircraft could see a 40% advantage in relative profitability over other carriers under the EU emissions trading scheme.

Indeed, it argues the most efficient airlines could increase profitability in markets where they can pass on full carbon costs in ticket prices, while gaining from the free carbon allowance permitted under the scheme.

"It's very hard to say which airlines will necessarily lose, gain, or stay at the same level [under emissions trading]," says Carbon Trust head of investor engagement Bruce Duguid.

But he suggests that airlines operating on more price-sensitive and competitive routes, where there is little room to increase fares - such as short-haul leisure markets - look more exposed than airlines operating in less price-sensitive markets.

"What we can be certain of is the most-efficient players should win," he adds. "The more fuel-efficient operators will be 20-40% higher [in relative profitability] than the average."